How to effectively settle your debts to banks and servicers.
What to watch out for !
In the difficult economic environment we all live in, repaying loans that we may have taken in other times and with other incomes can prove to be a very difficult task.
In the following, we will mention some key points in the process of settling your loans.
Is your loan overdue?
If your loan is not overdue and you have just started the process to settle it either because the instalment has increased due to the interest rate (variable) or your finances have changed for the worse, then the bank or servicer will most likely not even bother with your request.
The only way you will be offered a proposal to settle your loan is if there are at least 2 to 3 unpaid instalments. Rest assured, the bank or servicer will then deal with you without you taking the first step.
Is this the first time your loan has been settled?
This is a key question, as if the loan is being arranged for the first time, then the bank or servicer will most likely offer an arrangement that may involve a grace period (interest-only payment), a reduction of the monthly payment for a period or an extension of the loan term.
However, these solutions increase the overall cost of servicing the loan, as they are almost never accompanied by an interest rate reduction.
If the loan has been rescheduled more than once then the reason(s) why the previous arrangements were not respected is relevant.
For example, if a loan arrangement was not honoured for objective reasons (e.g. health reasons, loss or reduction of income, etc.) then the bank or servicer is likely to reconsider a new arrangement with more favourable terms.
If, however, the previous arrangements were not respected through the debtor’s fault, the creditor will “harden its position” by taking legal action (e.g. termination of the loan agreement, issuance of a payment order and an auction of movable or immovable property).
Is your loan secured or unsecured?
If your loan is secured, i.e. if a mortgage on real estate has been registered or if deposits, company shares or bonds have been assigned as collateral, then the bank or the servicer has the upper hand, as if the collateral is of sufficient value (in relation to the amount of the loan) then they can unilaterally (and after the loan agreement has been terminated and a payment order has been issued), liquidate the collateral in order to reduce or even repay the loan.
If your loan is unsecured or partially secured, then the bank or servicer will be more amenable to a loan arrangement with favourable terms, possibly including a partial write-off.
The main reason is that the creditor will not be able to pressure you with the “threat” of liquidating the loan collateral, while avoiding further legal actions (e.g. payment orders, issuing an auction schedule for movable and immovable property), in order to avoid legal costs.
However, care should be taken if, although the loan is unsecured, the debtor retains other assets free of encumbrances, as if the bank or servicer issues a payment order, it may register a forced lien or mortgage against another property of the debtor, even if it was not given as security for the loan in question.
Is the arrangement offered to you worth it?
Let’s say that finally the bank or servicer offers you the much-needed arrangement for your loan.
The question that arises is whether the arrangement ultimately favours you with your specific financial data, or the bank that will write off another red loan from its books.
The “unwritten rule” in bank loan regulation is that the first arrangement proposed by the bank or servicer almost always favours the bank and not the borrower. This makes sense, considering that the creditor will choose the option that is “safest” for him.
How can you effectively negotiate the settlement of your loan?
As the facts of each case are different, the handling of the case should be equally different
The ultimate goal of the negotiation should be not only to achieve the best possible arrangement for the debtor based on the facts of the case, but also to avoid a bad arrangement that may tie him/her up for a long time and end up costing him/her dearly.
Our team, with over 20 years of experience in bank loan restructuring, can guarantee the best possible result for your case, with knowledge, reliability and efficiency.